Chapter 8-11 (Macro & Economic Growth)

Aggregate Demand (AD) (definition)

The total demand by households, firms, government and foreign sectors for the final goods and services that is domestically produced in the economy at various price levels

Aggregate Supply (AS) (definition)

The total output that firms in the economy are willing and able to supply at different price levels in a given time period

What propensities is k equal to? (formulae)

k = 1/MPW = 1/1-MPC = 1/MPT + MPM + MPS

(Template definition) Marginal propensity to x (MPx)

Measures the change in x due to a change in national income

Economic Growth (definition)

The increase in real GDP or expansion in productive capacity of an economy

Slow growth

It is a period where RNY is rising but at a slower rate

Recession

A period where RNY falls over a period of a year

Unemployment (definition)

The situation which labour who are willing and able to work cannot find work

Full employment (definition)

The situation where job seekers who are willing and able to work can find jobs

Voluntary unemployment (definition)

The situation where labour chooses not to take up available employment, anticipating that better jobs can be found

Involuntary unemployment (definition)

The situation where job seekers who are willing and able to work cannot find any available jobs

Underemployment

The situation where ability of labour to obtain employment is not used to the maximum ability

Demand-deficient unemployment (definition)

Arises from insufficient AD, which may be caused by business cycles as well as economic shocks

Business Cycle (definition)

A series of stages in the economy as it expands and contracts (measured by GDP)

Structural Unemployment (definition)

The situation that arises from mismatch of skills possessed by the unemployed and skills required by employers

Frictional Unemployment (definition)

A type of short-term unemployment arising from time required for

job seekers to look for suitable jobs and

employers to look for suitable workers

due to information imperfections in labour market

Inflation (definition)

Economic situation where there is a sustained increase in GPL in an economy

Demand-pull inflation (definition)

The rise in GPL due to persistent increase in AD not being matched by output of goods & services

Cost-push inflation

The rise in GPL due to persistent rise in Cost of Production

What does the Consumer Price Index (CPI) measure

The price of a fixed basket of goods and services commonly consumed by households in the country

Deflation (definition)

Economic situation where there is a sustained decrease in GPL in an economy